Tekni-Plex Turn Around Hinges On Pharma Packaging Products and Services
With finances back on a solid footing, the company plans investment in its pharma and medical device businesses.
Tekni-Plex, Inc. (King of Prussia, PA) is focused on growing its pharmaceutical packaging and medical device business segments, after implementing broad reforms to restore corporate profitability.
Since a financial restructuring two years ago, the global manufacturer of packaging and tubing products has maintained investment in its core businesses, and is planning for continued growth, says Paul Young, CEO, Tekni-Plex.
“In the first 18 months, we cleared away a lot of the debris. Now, as a smaller but more profitable company, we are focusing heavily on profitable growth. We have invested over $40 million since 2008, with a great deal of that going to the healthcare businesses,” Young says.
“We have improved earnings by over $30 million over the last two years, on about $200 million less in sales. (And) we expect that fiscal 2011 will be the best year in a long time in this company’s history,” Young adds.
Through a string of acquisitions since its founding in 1967, Tekni-Plex grew into an $800 million company with businesses in healthcare, foods, consumer products, and specialty markets. Left vulnerable by increases in raw material costs, weak operating results, and high debt, the company completed a financial restructuring in 2008. Oaktree Capital Management and Avenue Capital Corp. acquired a controlling interest in a debt-for-equity swap.
Young was hired soon thereafter from Graham Packaging Holdings Corp. as CEO to execute a turn around plan and run the business.
“The company was paying about $100 million in cash interest annually on $800 million of debt. All the available cash was going to service the debt.” In the restructuring, about $300 million of debt was converted to equity, reducing the annual interest payments by about $50 million.
“Then the free cash became available for improving the business,” Young says.
“There were three things we had to do: Solve the liquidity issue; put the domestic business on a solid footing and stop the bleeding operationally; and strengthen organizational capabilities and talents,” he says.
New upper management and business segment leaders were hired. Company-wide budgeting and forecasting was implemented. Unprofitable businesses were downsized or eliminated in a reorganization of manufacturing and product lines.
“Tekni-Plex was run similar to a holding company, with low interaction between businesses, and loose controls on policies and procedures. It was really a matter of addition by subtraction—getting rid of the businesses that were not performing well,” says Young.
Most of the company’s problems stemmed from non-packaging segments that had threatened to undermine the whole company.
Burlington Specialty Resins, a manufacturer of non-pharma grade PVC that lost $27 million over seven years was shut down. Three Dolco Packaging Corp. plants were closed as the company exited the consumer PS plate segment.
The garden hose business was “drowning in a sea of capacity with no demand and very high costs. We had to take a meat ax to the cost side, shuttered some plants, improved the efficiency of others, accelerated new product development, and worked on our pricing,” Young says.
New leaders were hired in four of Tekni-Plex’s six business segments, with other top managers promoted. The company also hired a new CFO, and added functions that were missing in the old Tekni-Plex organization.
“Tekni was buying $300 million in rubber and polymers with no common procurement function. We brought in a new vp of procurement to bring cost discipline to purchasing; that has translated to an improved value proposition for our customers,” Young says.
Tekni businesses that performed well through the rough years of 2006-2008 included the European division. Luc Vercruyssen, managing director of the Tekni-Plex wholly-owned European subsidiary Tekni-Plex Europe NV reports to Young. “Our business in Europe has continued to flourish. Recent investment in state-of-the art pharma and medical films technology had driven growth in many different applications.”
New investment is planned in the $250 million healthcare businesses. Segments include pharmaceutical packaging, and compounds and components, and liners and films for medical and drug delivery device manufacturing and packaging.
“In the last six months, our focus has shifted from fixing the company and surviving in a recession (to strategic growth). We have strong market positions in these businesses. Many businesses were siloed to a large extent (and) never grouped with a market focus. We are trying to unlock a lot of cross-selling opportunities,” Young says.
Philip Bourgeois joined the company from Rexam Plastics Packaging as the head of technology development and regulatory affairs. He is initially focused on development of all of the healthcare business—including the closure liner and seal business which includes the Blauvelt, NY-based Tri-Seal operations.
Tekni-Plex Europe NV last year bought Top Seals Dichtungseinlagen (Hanover, Germany). About 20% of the liners and gaskets the company produces are used in healthcare applications.
“We are really pushing the closure liner business as we see a great need in our customer base for a strong number two supplier to compete on innovation, quality, service and price,” Young says.
The flexible films, elastomers, and tubing businesses are branching out.
Two facilities for manufacturing vinyl compounds used for tubing and device injection molding in Belfast, Ireland and China, have recently expanded capacity, adding to US-based capacity in vinyl compounds.
Production of film liners used in bio-reactors has been launched at a facility in Belgium.
In extruded products for spray pumps and dispensers, “a superior world class operation” in Italy complements gasket and grommet manufacturing by American Gasket and Rubber in the US.
In pharmaceutical blister films, customers will benefit from a one-stop-shop approach.
John Zripko, vice president, pharma-Americas, oversees blister film manufacturing operations in Canada, New Jersey, and South America. Tekni-Plex plans to invest $6 million this year in the domestic film business, in projecting blister film market growth at 6 to 8%. “In addition, we are seeing excellent growth in our high-barrier film business in Latin America,” says Young.
“We have made a lot of improvements on the film processing side, and more are planned.
“Across the board in all of our business, you will see a lot of new products in the next 12 to 18 months,” Young says.